PSNC 2018: Asset Allocation Comprehension for Plan Sponsors and Participants

At the PLANSPONSOR National Conference (PSNC), a day two session covered the latest trends among asset allocation vehicles, particularly target-date funds (TDFs) and managed accounts.

At the start of the session, 84% of audience members said they have TDFs as qualified default investment alternatives (QDIAs) in their plans. Whereas once managed accounts and TDFs had reigned as equals, the first question the panel asked was if, in a TDF-dominated world, there is any room for managed funds and accounts.

Greg Jenkins, managing director and head of institutional defined contribution at Invesco, replied that, whether managed accounts or TDFs, the answer is communicating with participants to understand what account or fund works best with their needs. Instead of debating superior investment options, plan sponsors should educate participants on what TDFs and managed accounts are, he says.

“We’ve been doing research on language, and we found again and again that the word target date, glide path, etc., participants don’t know about them,” he said. “There’s a real disconnect between what participants understand and what’s possible in your plan. It all depends on your company and how you communicate with participants.”

Joseph Lee, senior vice president and head of retirement investment solutions at First Eagle Investment Management, agreed, adding how important it is for plan sponsors to ask questions.

“Gather more information. The solution that requires the least amount of assumptions is probably right,” he said. “The thing that we need to determine is what is the right solution for our employees? Is everything okay in their life? We need to dig into that a little further.”

Chad Cowherd, vice president and head of client relationship management at American Century Investments, believes TDFs and managed accounts can prosper in the same plan, but he said the latter may prove tough, due to their well-known issue with regards to benchmarking. While managing a TDF can be difficult, benchmarking managed accounts has shown far more of a challenge due to their increased personalization and customization features.

“TDFs and managed accounts can live in harmony in a plan … Managed accounts are also a little bit harder to benchmark and compare. They tend to lean more towards low-cost and passive,” he said.

On the subject of multiple target-date suites in a single plan, Cowherd added that while industry professionals previously believed more is better, that ideology has since diminished. Instead of helping participants, greater investment options may only overwhelm them, he said.

“The industry has gone from thinking it’s better to get more, but now we’re going back because it’s not,” he said. “You need to make things simple. Participants actually stop deferring when they have too much choice and when it gets complicated. If they’re not using it the right way, that’s in nobody’s interest, not even mine.”

Circulating among recent industry and investment trends are robo advisers, and the question of whether these online tools can increase participant engagement or interaction. Since their inception, robo advisers have expanded to launching retirement planning products and services, but Cowherd sees the feature as a wealth solution instead, adding how a robo advisers’ help is only exemplified with a real-life adviser near.

“That feels like more like a wealth solution than retirement,” he said. “I feel like if you’ve got a robo product and an adviser sitting with a participant, that robo becomes more real.”

In an effort to relieve questions and confusion from plan sponsors, panelists discussed a series of recommendations to help employers get on their feet. Suggestions included hiring consultants and informing them of the plan, relaying hard work to employees, and understanding the plan’s needs.

“At the end of the day,” continued Cowherd. “It’s looking at what you have and what can help you move forward.”